Analysis of Politics, Philosophy and Economics from a Marxist Perspective

Wednesday, 13 April 2016

Tilting At Windmills - Part 4 of 6

Mercantilism

But, Mike essentially skips over the question of whether his underlying thesis is valid or not. He begins by tilting at yet another windmill. He says that I objected that he should have written the formula for the circuit of capital as M - C ... P ... Cʹ - Mʹ , rather than M - C - Cʹ – Mʹ. In fact, I did not. I simply commented that,

“In discussing the circulation of capital,money and commodities, in Capital II, Marx expands this description to M – C … P... C' – M'. This indicates more clearly that the source of the surplus value cannot be found in any process of exchange, all of which takes place on the basis of an exchange of equals.”

My objection was not at all that Mike did not use this expanded form of the circuit of newly invested money-capital, but was that he presents this circuit of newly invested money-capital as being the circuit of capital itself, whereas it is quite clear that for Marx, the actual process of social reproduction, of the reproduction of existing industrial capital is given by the circuit P... C' – M'. M – C … P. Having noted this substantive objection, however, Mike rather than dealing with it, simply passes on. When he returns to it later, his argument, once again, completely misses the point.

Following Marx, I described the process of social reproduction, as set out by the Physiocrats in material terms, because, as Marx also points out, that process of social reproduction requires that the physical use values that comprise the constant capital (means of production), and variable capital (means of consumption) are themselves physically reproduced on a like for like basis. But, Mike then completely misunderstands the basis of the argument developed from there as being about the maximisation of a social surplus product, rather than a social surplus value.

So, he writes,

“At this point we see why the fact that money profits, rent and interest are dependent on the production of a material surplus does not imply the dominance of productive capital over money capital, but only determination in the last resort by production.”

But, that was never the argument I put forward. The argument put forward, as indeed it is put forward by Marx himself, as set out in the quote given earlier, is that rent, and interest are dependent upon the production of moneyprofit, which in turn is dependent upon the production of surplus value, and surplus value in turn can only be produced by labour exchanging with productive-capital! It is that very simple fact that means that, ultimately, neither capitalist rent, nor interest can exist without the existence of productive-capital, the former are dependent upon the latter, limited and constrained by it, and consequently subordinated to it.

The whole point about Marx's circuit of capital, as being P... C' – M'. M – C … P, is that it describes the process of social reproduction, in its specifically capitalist context, not as being for the purpose of producing money profits, but of producing money profits only as a moment within the circuit, on the way to accumulating more productive-capital (not simply more means of production as use values). It is that fundamental characteristic of capitalism of the primary requirement to accumulate productive-capital, which distinguishes it, and which subordinates everything else, ultimately to it. As Marx put it,

“And the capitalist process of production consists essentially of the production of surplus-value, represented in the surplus-product or that aliquot portion of the produced commodities materialising unpaid labour. It must never be forgotten that the production of this surplus-value — and the reconversion of a portion of it into capital, or the accumulation, forms an integrate part of this production of surplus-value — is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.”

(Capital III, Chapter 15)

The Formal and Real Subordination To Capital

I will deal here briefly with another related misconception of Mike. It is in relation to the formal and real subordination of labour, which Mike uses as also the basis of his discussion on the formal and real subordination of productive capital to money-capital. My objection to Mike's distinction between the formal and real subordination of labour to capital, is that his presentation of it is wrong. He defines the formal subordination of labour to capital in terms of the putting out system, and defines the real subordination of labour in terms of the employment of that labour in factories. But, this is not the distinction that Marx makes in Capital I.

The distinction that Marx makes is this. Labour is only subject to a formal subordination to capital both in the putting out system, and in the factory system, so long as that labour continues to operate essentially as individual labours, as skilled workers who merely utilise the means of production of the capitalist. What prevents them from selling commodities, the product of their labour, as opposed to selling their labour-power itself as a commodity, is the fact that they do not any longer own their means of production.

By contrast, what signifies the real subordination of labour to capital, is the fact that these workers, within the factory, go through a whole series of stages whereby they go from being handicraft producers, using the age old methods, simply within the factory structure, to being detail workers as a result of the division of labour, through to becoming unskilled generic workers, who merely mind machines, their individual skills now being performed instead by the machine. It is only at this point, that labour is really subordinated to capital, where they can only sell their labour power as this generic factory labour, it can only operate as a cog, an aspect of the collective labourer, and so can only be sold to capital, to the owners of factories, i.e. to capital.

There is another sense of this distinction between the formal and real subordination of labour to capital. Whether the worker is a handicraft worker working in their cottage, provided with material from a merchant, under the putting-out system, or a handicraft worker working in a factory, provided with material and instruments of labour by a capitalist, the situation remains that it is the worker that controls the labour process. The worker picks up whichever tool they require to undertake the specific task, and uses that tool under their own control, as a means of achieving their object. They move from one place to another in the process of this activity, which was one of the savings in time that the division of labour brings about.

It is still a question of individual workers selling their labour-power as a commodity to the capitalist. In fact, a look at Marx's analysis in Theories of Surplus Value, shows the extent to which there remains an idea that what these individual workers are selling to the capitalist is the product of their labour, and not labour-power itself, which is why various explanations are given as to why the worker is then not paid the full value of that product. For example, Marx deals with the arguments that the worker does not get paid the full value of their product, because the capitalist charges for the means of production used, or for taking the risk of selling the worker's product, or is paid interest for advancing capital to the worker.

But, the transformation of the labour process, within the factory, over time, and the introduction of machine industry reverses the situation. It is then not the worker that decides which tools are required, but the machines employed in the factory, which determine which workers are required, how many workers are required, how fast they will work, how long they will work, and when they will work. That constitutes the real subordination of labour to capital.

The Subordination of Merchant and Money Capital

Marx makes a similar point in relation to the way industrial capital similarly brings about a real subordination of merchant-capital and money-capital. Prior to industrial capitalism usurers capital could exist because the demand for money-capital was limited. Those who resorted to borrowing from usurers only did so out of desperation, and so were forced to pay the extortionate rates. There was little lending and borrowing, high levels of interest, and effectively no limit to the rate that could be charged. As Marx sets out, such conditions are inimical to capitalism, which is why capitalists developed commercial credit, so as to bypass the usurers. Interest-bearing capital is subject to a formal subordination to industrial capital, via the introduction of various laws that limited interest payments and so on, but the real subordination of this interest-bearing capital comes from the ability of industrial capital to produce large amounts of money profits, which can simply be ploughed back into the accumulation of productive-capital, and from its development of commercial credit, whereby one industrial capital simply lends commodity-capital to another industrial capital, on the basis of deferred payment.

The situation is similar Marx says to what arises in terms of the relation of rent and profit. Under feudalism, surplus value takes the form of rent, and it is rent which acts as the constraint on profit. But, under capitalism, surplus value assumes the form of profit, and rent only arises on the basis of surplus profits, and so the amount of rent is constrained by profit. The same is true with interest-bearing capital. Interest-bearing capital can only exist on any sizeable scale so long as industrial capital exists, and that in itself makes the former dependent on and subordinate to the latter. It is industrial capital which produces the profit, which is the source of the supply of new loanable money-capital, and it is industrial capital, which generates the demand for loanable money-capital. It is then ultimately, the requirements of that industrial capital, which sets the limit for the rate of interest, thereby again subordinating money-capital to its needs.

Unequal Exchange and Mercantilist Explanations of Surplus Value

Mike's response to this is to argue that this is only true for capital as a whole, but is not true if we just look at say British capital.

“It is for related reasons that comrade Bough’s reliance on Marx’s reproduction schemas from Capital volume 2 to deduce the necessary dominance of industry is unsound. These reproduction schemas apply to a closed capitalist economy, thus to the world economy as a whole.”

Firstly, this is a rather odd argument, because Mike's argument has not been framed in terms of the situation facing only British capital, but of capital in general, i.e. precisely of global capitalism! Secondly, its not even a valid objection in relation to British capital. Mike states,

“Suppose for the sake of argument that there was no such thing as value transfers from (some) countries lower in the global hierarchy to (some) countries higher, and that it was true that high British living standards were merely a product of increased productivity (as we will see below, given the very large British deficit in ‘visible’ trade, that view is more than slightly implausible).”

So, we have here, another example of the old Mercantilist argument that surplus value is the product of unequal exchange, and a transfer of value. We are expected to believe that the huge sums of surplus value in developed economies are the result not of the phenomenal ability of such societies to generate new wealth, because of their extremely high levels of productivity, but are merely the consequence of grindingly poor countries somehow continuing to transfer increasing amounts of value to rich countries, year after year, decade after decade, century after century! This is not just economic theory driven back to before Marx, it is economic theory driven back to before Adam Smith! Yet, even a cursory view of reality, also shows that some of those grindingly poor countries have managed to grow themselves, and are far from the picture of being merely “fundamentally colonised economies”, as Mike maintains.

In Theories of Surplus Value, Marx points out that the reason the Mercantilists saw the basis of surplus value as arising from this kind of unequal exchange was that they were based in Britain as a trading nation. The reason the Physiocrats were way in advance of them, Marx says, is because the Physiocrats were based in France, where it was quite clear that the source of surplus value was in the productive process, not in exchange,

Third Worldism and Super-Exploitation

Here the resort to such nonsensical Mercantilist arguments stems from those old ideas about capitalism having reached the end of the road, as a productive system, and only able to increase the living standard of workers in the metropolitan centre by a super-exploitation of those in the periphery. The more recent lineage of this argument comes from within the ranks of Stalinism and Third-Worldism. In fact, in Capital I and III, Marx demonstrates why it is precisely the higher level of productivity in the more developed capitalist economy, which ensures that real wages are higher in those economies, and yet why the rate of surplus value, and of profit in such economies is greater than in the less developed economy. The same can be seen in Engels comment earlier,

“And in proportion as this increase took place, in the same proportion did manufacturing industry become apparently moralised. The competition of manufacturer against manufacturer by means of petty thefts upon the workpeople did no longer pay. Trade had outgrown such low means of making money; they were not worth while practising for the manufacturing millionaire, and served merely to keep alive the competition of smaller traders, thankful to pick up a penny wherever they could. Thus the truck system was suppressed, the Ten Hours’ Bill was enacted, and a number of other secondary reforms introduced — much against the spirit of Free Trade and unbridled competition, but quite as much in favour of the giant-capitalist in his competition with his less favoured brother. Moreover, the larger the concern, and with it the number of hands, the greater the loss and inconvenience caused by every conflict between master and men; and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends. The largest manufacturers, formerly the leaders of the war against the working-class, were now the foremost to preach peace and harmony. And for a very good reason. The fact is that all these concessions to justice and philanthropy were nothing else but means to accelerate the concentration of capital in the hands of the few, for whom the niggardly extra extortions of former years had lost all importance and had become actual nuisances; and to crush all the quicker and all the safer their smaller competitors, who could not make both ends meet without such perquisites. Thus the development of production on the basis of the capitalistic system has of itself sufficed — at least in the leading industries, for in the more unimportant branches this is far from being the case — to do away with all those minor grievances which aggravated the workman’s fate during its earlier stages.”

Nothing here about that improvement of the condition of the workers only being possible on the basis of the super-exploitation of Somalis. In fact, as Marx sets out in Capital I, Chapter 22,

“The more intense national labour, therefore, as compared with the less intense, produces in the same time more value, which expresses itself in more money.” (p 525)

The Extraction Of Relative Surplus Value

So, labour in Britain, because it is far more productive, acts as though it were complex labour, compared to say labour in Somalia. The consequence is that an hour of labour provided by a British worker, may be the equivalent of 1,000 hours of labour provided by a Somali worker. Marx makes the point in relation to the labour of British workers and other European workers. Quoting a report from one of the factory inspectors, Marx writes that he,

“...proves by comparative statistics with continental states, that in spite of lower wages and much longer working-time, continental labour is, in proportion to the product, dearer than English.” (p 526)

In fact, the wages were around 50% lower in Europe than in Britain, and yet Britain was more competitive, and obtained a higher rate of profit. The reason was that although the much higher level of productivity meant that the value produced by British workers, in an hour, (because it was the equivalent of complex labour) was much higher than that of their European (let alone colonial) counterparts, a smaller proportion of this value, created by that British labour, went to reproduce the labour-power of the British worker.

If the average British worker, in a ten hour day, produces the equivalent of 1,000 hours of the labour of a Somali worker during the same 10 hour day, the British worker might have the equivalent of 100 hours of labour incorporated in the value of their labour-power, and still produce the equivalent of 900 hours of surplus value during the day. The Somali worker might only have the equivalent of 8 hours of labour incorporated in the value of their labour-power, and yet still only produce 2 hours of surplus value during the day. In reality, despite much higher real wages, the British worker is far more exploited than the Somali worker (here the rate of exploitation of the British worker is 900%, whereas that of the Somali worker is just 25%). It is the British worker that is super exploited!

As Marx puts it, in opposition to Carey,

“In an “Essay on the Rate of Wages,” one of his first economic writings, H. Carey tries to prove that the wages of the different nations are directly proportional to the degree of productiveness of the national working-days, in order to draw from this international relation the conclusion that wages everywhere rise and fall in proportion to the productiveness of labour. The whole of our analysis of the production of surplus-value shows the absurdity of this conclusion, even if Carey himself had proved his premises instead of, after his usual uncritical and superficial fashion, shuffling to and fro a confused mass of statistical materials.” (p 527-8)
In other words, as productivity rises, labour produces increasing amounts of new value, and out of this new value, a rise in real wages can also be funded. But, the rise in those real wages is never proportional to the rise in productivity, so that the rate of surplus value is thereby continually driven higher, by this process of extracting relative surplus value. That was the basis upon which Fordism was developed, and upon which social democracy exists, of a shared material interest in raising productivity, and the production of surplus value, as a means accumulating more capital, and of thereby raising real wages.

About Me

Left school at 16. Became an ASTMS shop steward at 19, and a lifelong trade union activist. Delegate to North Staffs Trades Council 1974-87. Secretary North Staffs Miners Support Committee 1984-5. President North Staffs Trades Council 1985-6 and 1986-7. Delegate to Staffordshire Association of Trades Councils 1985-7. Delegate West Midlands Regional Council of the TUC 1985-7. Secretary Newcastle UNISON 2000-2.
Member of the International Communist League/Workers Socialist League 1974-87.
Went to University as mature student at age of 24. Obtained Joint Honours Degree in Economics and Politics with Philosophy and Statistics, followed by a Post Graduate Certificate in Education.
Labour Party member since 1974. Stoke City Councillor 1983-4, expelled from Labour group 1983, and resigned from Council in 1984 because of refusing to vote for rent and rate rises, and budget cuts. Staffordshire County Councillor 1997-2005.
Assistant Secretary Stoke District Labour Party 1981, and held pretty much every position from Executive member, to Branch Secretary, and Branch Chair.